Archived IMT (2011.04.15)

EUR unable to stand above $1.45 as Moody's cuts Ireland and spreads continue to widen. Focus on Europe and US CPI to justify ECB rate hike and increasingly hawkish Fed. In addition to a busy US earnings release, US econ calendar is busy, with CPI, TICS and Indus Production.

For the third consecutive trading session, the euro cannot hold its ground above $1.45 handle as momentum behind last week's ECB tightening appears to be dissipating. Renewed sovereign debt focus on the periphery dragged the single currency back below $1.4450 after Moody's cut Ireland by two notches citing its weaker economic prospects. Meanwhile, sovereign debt swaps continue to blow out particularly for Portugal and Greece - the latter seeing its CDS rise to record highs despite reassurance from ECB's Orphanides that a restructuring is not inevitable.

US CPI to be released at 8:30ET (12:30 GMT) expected to stay unchanged at 0.2% m/m increase on a more closely tracked Core level. Anything stronger marks the highest rate of growth in almost two years, bolstering the case of the more hawkish FOMC members calling for tightening before the end of this year. US Mar Indus Production expected at +0.6% after -0.1, with Cap Utlization exp at 77.3 from 76.3. Apr prelim UMich consumer sentiment survey exp at 69 from 67.5.

EU CPI was slightly on the hotter side at 2.7%, sending EUR/USD above $1.4470, but Friday could see more defined risk aversion supporting the dollar. Note that Google, reporting results afterhours on Thursday was a major disappointment, with shares falling over 5% below $550 to a 2-month low. Following a disappointing result from high-flyer JPMorgan earlier this week, Bank of America also disappointed on both revenues and earnings. As was the case with Alcoa on Monday, risk aversion in equities still correlates, albeit not as pronounced with USD demand.

TIC data (9:00 ET, 13:00 GMT, 14:00 BST) may also support the greenback through higher Treasury rates, particularly if China remains a net seller as it has been for the past 3 months. Recall Japan, which until now has picked up the slack for China, is increasingly likely to shift its investment objectives inward to help meet the demands of earthquake recovery just as the June expiration of the 3rd key buyer of US debt - Federal Reserve - draws nearer. 10-year yields fell for much of this week to enter Friday below 3.50% but historically have a tendency to rise on disappointing TIC flows.

By GG - AshrafLaidi.com Staff